By Tom Winnifrith, The Sheriff of AIM | Wednesday 21 December 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Today's end of year trading statement from Eden Research (EDEN) is a disaster. It does its best to distract you from a looming cash crunch and a profits warning but what it also makes clear is that the Terpenetech deal of August 2015 was a fraud. How do we know? Because it is not mentioned. It is swept under the carpet. FRAUD, FRAUD, FRAUD I say again FRAUD.
Eden starts with its usual blather about jam tomorrow and indeed there is a bit of jam today with a statement that sales of its products " at distributor level are in excess of €1m with over 85,000 litres sold in those territories" Hmmmmm - drill down. "at Distributor level" what does that mean? Oh. FY calendar 2016 Sales will be £400,000. Oh whatever.
So let's wade through the jam and get to the hard metrics. The fraudsters state:
Revenue for the year ended 31 December 2016 is currently expected to be in the region of £0.4m with an EBITDA loss for the year of approximately £1.1m. Eden's cash position is expected to be approximately £1.4m at the end of 2016. The evolution of Eden's business model in 2016 from technology licensing to product sales has resulted in lower upfront payments, which coupled with the delay in receiving regulatory approval in certain territories has impacted earnings in the 2016 financial year. However, the Board remains confident in the new business model and believes that it will lead to greater returns in the medium and longer term.
Oh dear. So in fact HY2 sales were just £300,000 and having burned £600,000 in H1 that uplift in sales saw cashburn in H2 increase to £700,000. At the half year trade payables exceeded trade receivables by c£350,000 so net current assets at the year end will be c£1 million with a cashburn running at £100,000+ pcm. That means that unless Eden can again raise fresh equity its auditors will not sign off on its accounts without an emphasis of matter so it is placing ahoy!
Now to the fraud. Back in August 2015 Eden sold a license to a product to a very closely associated (joke) company Terpenetech for £600,000 and booked that as revenue. Terpenetech had no cash. So Eden bought a 29% stake in Terpenet4ech by issuing it £920,000 of shares which it promptly dumped so paid Eden off.
As a 29.9% shareholder in Terpenetech Eden would be consolidating its sales in its own P&L. It would surely be mentioning how it is doing. I put it to you that Terpenetech's sales in 2016 have been fuck all and as such the carrying value of Terpenetech ( 29% of £3 million) is a joke and should be written off. I hope the auditors will look at this point.
If that is indeed the case, I put it to you that Eden has clearly engaged in a panama pump fraud. Why no mention of Terpenetech and that "valuable" license it bought from Eden in today's statement? You know the answer.
After 21 years in existence this is not exactly an early stage R&D play. Eden is still spunking other people's cash and it has survived only because it has got away with fraud. So far. Can Nomad Shore Capital explain how it allowed Eden not to comment on Terpenetech in this statement? Can it say when the bailout funding is and at what price? 8p? Lower you say? And can it say why it is happy to act for a fraud?
At 11.375p the stance is sell. Fair value for this crap that disgraces the AIM Cesspit is 0p.
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